Monsanto Company (MON) reduced the higher-end of its EPS guidance for fiscal 2010 to $2.40-$2.45 from $2.40-$2.60 based on the restructuring expense that the company is expected to incur in relation to its Roundup business.
 
Earlier this year, Monsanto reduced the prices of Roundup herbicides to make them a more economical option for the farmers. The company now plans to begin some restructuring program for its Roundup brand to enhance its multiple uses of weed control.
 
The restructuring charge is expected to negatively affect the EPS by 22 cents, the majority of which will be charged in the fiscal 2010 and the balance in the fiscal 2011. Approximately $150 million restructuring charges are expected to be included in fiscal 2010.
 
However, in the long term or even from fiscal 2011 onwards the company is anticipated to derive optimistic outcome from the growth in the top-line results coupled with flat SG&A expense in comparison with fiscal 2010 SG&A expense in the range of $2.0-$2.1 billion.  
 
During the first nine months of fiscal 2010, Monsanto recorded a gross loss of $103 million from the Roundup business, but in fiscal 2011 it expects to generate gross profit in the range of $250 million-$300 million.
 
Revenue from the corn seeds and traits segments is also expected to escalate based on Monsanto’s continuous effort to increase production and focus on innovation and upgradation of the technology to make farmers more productive. The segment contributed approximately 45% of total revenue in the nine months ended 31 May, 2010. Thus, increased production will boost sales and thereby profit will increase based on higher economies of scale.
 
We bank on the company’s market leadership and remain optimistic on the near-to-mid term performance. Moreover, Monsanto’s capabilities in biotechnology and breeding research are generating a rich product pipeline, which is expected to drive long-term growth.
 
We reiterate our Neutral recommendation until any significant results. The stock currently retains its short term “Hold” rating, equivalent to Zacks #3 Rank.
 


 
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